1. Understanding Your Audit Rights and Obligations
The moment you receive an IRS notice of examination, your response window is fixed. You have the right to representation, to understand what the IRS is examining, and to provide documentation on your own terms, not under duress. Many taxpayers respond to audit notices without counsel and inadvertently waive rights or provide incomplete information that triggers expanded examination. An IRS attorney near me ensures your response is timely, complete, and strategically sound.
The IRS examination process has three primary levels: correspondence audits (handled by mail), office audits (at an IRS office), and field audits (at your business or home). Each requires different preparation and strategy. In our experience, early counsel involvement prevents the IRS from expanding the scope of examination beyond the stated items.
Notice Requirements and Response Deadlines
IRS notices specify a response deadline, typically 30 days from the notice date. Missing this deadline can result in assessment without your input. The notice also identifies the tax years and specific items under examination. Read the notice carefully; it defines the scope of your exposure. If the deadline is approaching and you do not yet have counsel, contact an IRS attorney immediately. Requesting an extension is possible but requires justification and must be filed before the deadline expires.
Examination Scope and Expansion Risk
The IRS can expand an examination beyond the items originally stated if it discovers issues during the initial review. This is where representation matters. Your attorney can negotiate scope limitations and prevent the IRS from fishing through years of records unrelated to the stated issue. For example, an audit of charitable deductions in 2021 does not automatically justify examination of all business income across five years, yet without pushback, the IRS often attempts this expansion. Your counsel can object and narrow the examination.
2. Penalty and Interest Exposure: What You Actually Owe
Taxpayers often focus on the unpaid tax but overlook penalties and interest, which frequently exceed the tax itself. Accuracy-related penalties run 20 percent of the underpayment. Fraud penalties reach 75 percent. Interest accrues daily at the federal rate plus 3 percent. Over a multi-year audit, interest compounds significantly. An IRS attorney can challenge penalty assertions and, in many cases, demonstrate reasonable cause for underpayment, which eliminates or reduces penalties entirely.
| Penalty Type | Rate | Typical Trigger |
| Accuracy-Related | 20% | Substantial understatement of tax |
| Fraud | 75% | Intentional evasion (rare; requires proof) |
| Failure to File | 5% per month | Late return filing |
| Failure to Pay | 0.5% per month | Unpaid tax after due date |
Interest accrues daily and is compounded. The longer an audit remains unresolved, the more interest accumulates. Settlement or successful appeal can halt interest accrual on the disputed portion. Your IRS attorney will evaluate whether settling the audit or proceeding to appeals offers better financial outcomes.
3. Representation before the IRS and in Tax Court
You have the right to representation at every stage: examination, Appeals Division, and Tax Court. Your attorney communicates with the IRS on your behalf, attends meetings, and presents your position in writing. This protects you from inadvertent admissions or pressure tactics. If the IRS and you cannot reach agreement at the examination level, the case proceeds to the IRS Appeals Division, which is independent of the examination team and often more receptive to settlement. If Appeals does not resolve the matter and the tax exceeds $50,000, you can petition the U.S. Tax Court, a federal court where the burden of proof shifts in certain circumstances. An IRS attorney experienced in Tax Court litigation is essential at this stage.
New York and Federal Tax Court Procedures
If you reside in New York or have New York-source income, your case may involve New York State Department of Taxation and Finance examination in parallel with the federal audit. The state often follows the federal examination and adopts the federal result, but state law differs in some respects. Tax Court petitions are filed in the U.S. Tax Court, a national court with offices in New York City. The court has specific filing rules, evidence standards, and procedural deadlines. Missing a filing deadline in Tax Court results in dismissal. Your counsel must be familiar with Tax Court rules and the court's judges' tendencies. New York-based practitioners often have an advantage in understanding how the court handles cases involving state residents and New York-source income issues.
4. Evaluating Settlement and Appeals Strategy
Not every audit dispute should proceed to trial. Settlement often makes financial sense if the IRS position is defensible and litigation costs would be substantial. Your IRS attorney evaluates the strength of your position, the cost of continued representation, and the likelihood of prevailing at Appeals or Tax Court. A settlement agreement (Form 870 or 870-AD) closes the audit and stops interest accrual on the settled amount. An Appeals settlement may include a split-the-difference compromise if both sides face litigation risk. This is where counsel judgment is critical. Many taxpayers reject reasonable settlements and later regret litigation costs and adverse rulings.
If your case involves corporate or business structure issues, counsel familiar with corporate legal affairs can help you evaluate whether the audit raises broader governance or liability concerns beyond the IRS matter itself. Similarly, if the audit or dispute involves reputational risk or public allegations, a defamation attorney may be relevant to your overall risk management strategy.
5. Next Steps: Building Your Defense Now
Start by gathering all documents related to the audit items: tax returns, supporting schedules, receipts, invoices, bank statements, and contemporaneous records. Organize chronologically. Do not discard anything or attempt to reconstruct missing records. Your IRS attorney will review what you have and identify gaps. If records are missing, that becomes part of the defense strategy. Second, prepare a timeline of events and decisions that led to the tax position in question. Why did you claim the deduction? What was the business purpose? What advice did you receive? These facts matter. Third, evaluate your tolerance for litigation and settlement range. Do you want to resolve this quickly, or are you prepared to fight? Your attorney will tailor strategy to your goals. Finally, if you have not yet received an IRS notice but suspect examination is coming (for example, you received a routine information request), contact counsel now. Proactive representation can shape how the examination unfolds.
03 Apr, 2026
